The Problem with Termination for Convenience Clauses in Construction Contracts

Facade of an old building in downtown New York, USA.

Termination for convenience clauses are contractual provisions that allow one party, usually the principal, to terminate the contract without cause or default by the other party, usually the contractor. These clauses are common in construction contracts, especially in large-scale or complex projects, where the principal may want to have flexibility and control over the project’s scope, budget, or timeline. However, these clauses can also pose significant risks and challenges for the contractor, who may incur costs and losses that are not recoverable under the contract.

What are the benefits of termination for convenience clauses for the principal?

Termination for convenience clauses can provide several benefits for the principal, such as:

  • Reducing the risk of litigation or disputes with the contractor, as the principal does not have to prove breach or fault by the contractor to terminate the contract.
  • Enabling the principal to adjust the project’s scope, budget, or timeline according to changing circumstances, such as market conditions, stakeholder preferences, or regulatory requirements.
  • Allowing the principal to switch to a different contractor or subcontractor if the principal is dissatisfied with the performance, quality, or price of the original contractor.

What are the problems with termination for convenience clauses for the contractor?

Termination for convenience clauses can create several problems for the contractor, such as:

  • Losing the expected profit or revenue from the contract, as the contractor may have invested time, money, and resources in preparing and performing the contract.
  • Bearing the costs and liabilities of demobilising and terminating the contract, such as paying off subcontractors, suppliers, or employees, or disposing of materials, equipment, or waste.
  • Not being able to recover the costs and expenses incurred in the overall management of the contract, such as site visits, inspections, meetings, or administration, unless the contract expressly allows for the recovery of those amounts.

How can contractors protect themselves from termination for convenience clauses?

Contractors can take some measures to protect themselves from the adverse effects of termination for convenience clauses, such as:

  • Negotiating the terms and conditions of the clause, such as limiting the grounds or circumstances for termination, requiring notice and consultation, or specifying the compensation or reimbursement for termination.
  • Keeping accurate and detailed records of the work done and the costs and expenses incurred under the contract, such as invoices, receipts, timesheets, or reports, to support any claims for payment or damages.
  • Seeking legal advice from a construction lawyer before entering into, performing, or terminating a contract that contains a termination for convenience clause, to understand the rights and obligations of the parties and the remedies available in case of termination.
Connor James

Connor James

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